Four steps in determining whether a flat fee is right, and three things to consider

In a previous post (http://bit.ly/P4CUUb if you missed it) I discussed the issues that might lead people to take flat fee deals. Now it's time to talk about how to calculate flat fees and whether a flat fee structure is right for you. I'm sorry, but there will be math today...

In the book world it's actually pretty easy to figure out whether a flat fee is a good deal:

1. Figure out how many copies you think you'll sell of your book (example: 50,000).
2. Take a fairly industry-standard wholesale price for the book (example: $5).
3. Take a fairly industry-standard royalty (example: 10%).
4. Do math: 50,000 x $5 x 10% = $25,000.

In that situation, if your publisher offers you $25,000 or more, you're probably getting a good deal.

For movies, TV, etc. it's much tougher: your contribution is being bundled with other people's and so the math is harder. And for magazines and photography you don't usually get to do the math at all: they will pay you from a standard rate card and that's about the size of it. But if you do get the choice, here's some other considerations:

• Are there tax reasons you might want to get paid a certain way? Example: you had a ton of losses in 2012; you might like to front-load your income so you can offset those losses.
• Theft, "Hollywood accounting", and honest error: all of these can result in your royalties being lower than they should have been. Do you really want to have the pain of auditing the publisher's or studio's books?
• Other more esoteric things like: if you're with a smaller publishing house or studio and you're concerned about their financial stability, getting all of your money up front means you've gotten it. If they go bankrupt after paying you, it's very unlikely to become your problem. If you're waiting for royalties, you may never see them.

So after all that, how do royalties work and what are their benefits and drawbacks (there are definitely both)? Next time...